BCE profit falls, but wireless business up sharply

By Wojtek Dabrowski

4 Min Read

<p>The offices of BCE Inc. are seen in Montreal, June 20, 2008. Canada's largest telecom company, BCE Inc. , won the backing of the Supreme Court of Canada on Friday to proceed with the world's biggest leveraged buyout.Shaun Best</p>

TORONTO (Reuters) - BCE Inc, the Canadian communications company that is set to be taken private in a C$34.8-billion ($33.1 billion) buyout, reported a lower quarterly profit on Wednesday even though it signed up lucrative long-term mobile phone subscribers at the fastest pace in about 2-1/2 years.

The lower profit was due to the absence of last year's big gain from an asset sale and fell short of analysts' estimates.

BCE -- Canada's biggest telecom company -- said it signed up 111,000 postpaid wireless users in the second quarter, up from 43,000 in the year-before period.

Postpaid subscribers pay bills on a monthly basis and often enter into years-long contracts. They are seen as more lucrative than prepaid users, who pay in advance for a set amount of mobile phone service.

The postpaid subscriber additions were "very, very impressive," said Troy Crandall, an analyst at MacDougall, MacDougall & MacTier. They were also better than those of market leader Rogers Communications Inc, which added 92,000 in the second quarter.

"Bell had some attractive plans," Crandall said, adding the buzz created by Apple's iPhone ahead of its launch on Rogers' network last month may also have attracted to BCE customers seeking less expensive devices and plans.

However, the growth in BCE's wireless unit was offset by weakness in its Internet business, and the company said it will take action to improve performance after losing 1,000 customers in the quarter.

"What you also are seeing is possibly the effects of some slowdown in the economy," Crandall said, adding the market for high-speed Internet is also maturing and characterized by fierce competition from providers such as BCE, Rogers and Quebecor Inc's Videotron unit.

BCE's shares no longer trade on the company's fundamentals as investors focus instead on whether the buyout of BCE by the Ontario Teachers' Pension Plan and a group of U.S. private-equity funds will close at C$42.75 a share as agreed. The deal is expected to close on December 11.

As the drama surrounding the leveraged buyout -- the largest deal of its kind in the world -- has played out over the past year, BCE's shares have languished below the takeout price. Investors have worried about whether the deal would be repriced, delayed or abandoned amid a crunch in the debt market.

BCE shares were up 23 Canadian cents at C$39.39 on the Toronto Stock Exchange on Wednesday morning.

BCE said it earned C$361 million, or 45 Canadian cents a share, in the second quarter, down from a profit of C$667 million, or 83 Canadian cents a share, in the same period a year earlier.

Earnings in the 2007 quarter included gains from Bell Aliant's sale of Aliant Directory Services and a favorable tax settlement totaling 36 Canadian cents a share.

Before one-time items, BCE said it earned 53 Canadian cents a share, down from 56 Canadian cents a share in the year-before quarter.

"Overall, this should make the soon-to-be new owners confident that the business risk has stabilized for this company," National Bank Financial analyst Greg MacDonald wrote in a note to clients. "Subsequently, we see nothing in these results to cause investors concern over the completion of the deal."

Analysts, on average, expected earnings before items of 56 Canadian cents a share and revenue of C$4.38 billion, according to Reuters Estimates.

Revenue at the Montreal-based company fell 0.1 percent to $4.42 billion.

Late last month, BCE said it would slash 2,500 management jobs at its main Bell Canada phone company unit to clamp down on costs before the buyout is completed.

($1=$1.05 Canadian)

Additional reporting by Susan Taylor and John McCrank;
Editing by Peter Galloway